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Summary

  • EOG's recent Eagle Ford wells are, on average, better than HK's Bakken wells.
  • HK's El Halcon (east Eagle Ford) recent wells IPs do not begin to compare with EOG's recent Eagle Ford wells IPs.
  • HK's recent Bakken wells are roughly comparable to CLR's recent Bakken wells IPs.
  • From a value standpoint, both EOG and CLR beat HK.

Halcon Resources Corp. (NYSE:HK) is a US oil and gas E&P company that has its lease holdings in some of the hottest US unconventional oil and gas fields. These include the Bakken/Three Forks, El Halcon -- just beyond the tip of the Eagle Ford, the Tuscaloosa Marine Shale, and other formations. Halcon Resources Corp. is particularly interesting, because it is being run by CEO Floyd Wilson. He is the man who built up Petrohawk Energy in a short amount of time. Then, he sold it for $12.1B to BHP Billiton (NYSE:BHP). Halcon Resources is his next venture, which he has identical plans for. Shareholders are hoping for another big win.

With Petrohawk, Wilson was one of the first into the Eagle Ford, and Petrohawk ended up with some excellent leaseholds. To this end, it is interesting to see how Halcon Resources' recent well results are comparing to the more established E&P drillers in the most prolific fields. EOG Resources (NYSE:EOG) and Continental Resources (NYSE:CLR) are two established drillers with some of the best acreage in some of the most prolific fields. They should provide a good benchmark against which to judge Halcon Resources .

Some of the results cited by HK from its Bakken/Three Forks are in the table below:

(click to enlarge)

One of the reasons for the improvement in the results year-over-year is that HK has recently gone to slickback fracking. Further, HK has managed to lower development costs at the same time it has been increasing results. HK says it is on track for a 5%-10% additional decrease in well costs by year-end 2014.

El Halcon development area is the second main play for HK in 2014. HK is putting 40% of its D&C CapEx into El Halcon (and 50% into the Williston -- Bakken). These are probably the best two plays to use to evaluate HK's performance relative to its peers. The table below summarizes HK's recent El Halcon results (Q1 2014 report data).

(click to enlarge)

These are decent results, but they do not approach the kind of results EOG has been getting from its Eagle Ford play. In its Q1 2014 earnings release statement, EOG Resources had Eagle Ford average IP results of 4,531 Boe/d from the eight wells cited in the news release.

Note: I used the following conversions as approximations for interpreting EOG's Eagle Ford results: 1 barrel of oil = 6 Mcf of natural gas, 1 barrel of NGLs = 3 Mcf of natural gas.

The above results are far better than Halcon Resources' El Halcon field results; and they are better than even the recent Halcon Resources Bakken results using slickback fracking.

EOG presented fewer Bakken results in its earnings news release; and even those were only of a general natural. Regardless, the average IPs were roughly half those of EOG's Eagle Ford results cited above. However, they are roughly equivalent to Halcon Resources' Bakken results. This is a vote of confidence for Halcon Resources, which acquired its Bakken leaseholds at a much later date.

Halcon Resources' El Halcon leaseholds are not comparable to EOG's Eagle Ford results by even the greatest stretch of imagination. The El Halcon could be said to be HK's Eagle Ford area property. It's just beyond the eastern end of the Eagle Ford. HK's results from there are good, but the Q1 2014 average IP results of 802 Boe/d do not begin to compare with EOG's average of 4,531 Boe/d in its recent Eagle Ford results. On top of that, HK has only about 100,000 net acres in the El Halcon field, and it has only about 134,000 net acres in the Bakken/Three Forks. The other field HK currently expects to get good results from is the Tuscaloosa Marine Shale, in which it owns about 307,000 net acres. However, it is still too early in the development of that field to make meaningful conclusions about how good or how profitable HK's results will prove to be there.

By comparison, EOG has 564,000 net acres in the heart of the oil window in the Eagle Ford that are currently yielding the great results cited above. Plus, it has 22,000 net acres in the Wet Gas window and 46,000 net acres in the Dry Gas window of the Eagle Ford, for a total of 632,000 net acres of some of the most prolific unconventional acreage in the US. EOG has about 90,000 net acres in the Bakken Core Area and another about 20,000 net acres in the Antelope Extension area of the Bakken/Three Forks. All told, EOG has 6+ million net acres across the globe, with about two-third of that in the US.

Continental Resources, one of the early companies into the Bakken, has 1.2 million net acres of leasehold there. From all of its assets, it had 1.084 BnBoe of proved reserves as of December 31, 2013. Approximately 71% of production is crude oil. In the Bakken, 80%-85% of production is crude oil. All told, CLR has 2.5+ million net acres of developed and undeveloped oil and gas plays.

Recently, CLR has been testing out different fracking methods. The results for higher levels of proppant have been good-to-great. In the Rollefstad part of the Bakken/Three Forks, the old average IP rates were 1,330 Boe/d. For 7 wells with about 200,000 pounds of proppant per fracking stage, the average IP was 2,675 Boe/d. One well was completed with about 300,000 pounds of proppant for each fracking stage. This yielded an IP rate of 3,720 Boe/d. Of course, proppant is expensive. Two slick water completion tests were done too. These yielded results which were approximately 30% higher production for the first 120 days; and they were approximately 50% above existing offset wells in the area. I am not sure CLR has decided which newer method it wishes to employ in the future. However, it is apparent that CLR's wells can roughly match the recent results HK obtained.

CLR has no Eagle Ford leaseholds. However, it does have a number of other large plays. One of these is the SCOOP (South Central Oklahoma Oil Province), in which it has about 425,000 net acres of leaseholds. These are not as productive as CLR's Bakken properties; but two Q1 2014 results from the Condensate Gas Window in Stephens County in the SCOOP had average IPs of 2858 Boe/d. This is considerably better than HK's El Halcon recent results.

If you compare the above three companies based on their proved reserves, HK has 136 MMboe; and these even include some assets that have since been sold. Yahoo Finance lists HK's enterprise value as $5.97B. CLR has 1.084 BnBoe as of December 31, 2013, with a $29.55B enterprise value. EOG had 2.119 BnBoe of proved reserves as of December 31, 2013, with a $60.26B enterprise value. Comparatively, these figures translate into proved reserves per $1 of enterprise value of:

  • HK = .136/$5.97 = 0.02278 Boe/USD
  • CLR = 1.084/$29.55 = 0.03668 Boe/USD
  • EOG = 2.119/$60.26 = 0.03516 Boe/USD

It would appear that HK has less actual value than either CLR or EOG. One could argue that HK is a younger company. However, its recent sale has not even been subtracted from the result. Plus, both EOG and CLR have large fields that are not currently being developed (more than half the lease acreage for each company). This acreage counts virtually nothing toward proved reserves. Yet, investors can be sure there is a lot of oil and gas in those fields. It would appear that HK is about 50% overvalued compared to either EOG or CLR, without even considering those extra, non-developed acres.

Still, the value per barrel of proved reserves is not outrageously off-putting; but the total debt/total capital (mrq) is off-putting. The results are below:

  • HK = 68.75% versus a 26.60% industry average.
  • CLR = 54.76%
  • EOG = 26.93%

From this perspective, EOG is by far the most fiscally stable stock of the three; and it still has a lot of growth left in it. HK is a momentum favorite. However, it is unlikely to stand up under the pressure of a down market. Both EOG and CLR should keep their stock values much more easily, and they are better values. In addition, the Tuscaloosa Marine Shale is still very much an unknown for HK. Yet, it is a large part of HK's exploration portfolio. If HK isn't able to consistently produce wells with good internal rates of return in the TMS, that could have a seriously negative impact on HK's stock price. Neither CLR or EOG has much to fear in that area.

At this time, I would not buy HK. Investors have been trending away from momentum names in the last couple of months; and that may continue. CLR and EOG are still worth investors' consideration; but neither the value nor the stability are there for HK at this time. That could change with a much better overall market outlook. It could change with consistent, numerous, and strong results from HK from its TMS fields. However, for the time being, HK is at best a hold; and perhaps it is a sell in this tough market.

The two-year chart of HK provides some technical direction for this trade.

(click to enlarge)

The slow stochastic sub chart shows that HK is near overbought levels. The main chart indicates that it had been in a downtrend last year. This bottomed in the beginning of 2014; and the stock has been heading upward since. However, the fundamentals indicate that HK is overvalued and overly risky compared to its bigger peers. It is not a buy at this time, even with Floyd Wilson as the CEO. HK has an average analysts' recommendation of 2.6 (a hold). It has a CAPS rating of three stars (a hold).

The two-year chart of CLR provides some technical direction for this trade.

(click to enlarge)

The slow stochastic sub chart shows that CLR is neither overbought nor oversold. The main chart shows that CLR is in a strong uptrend. It can still be bought. CLR has an average analysts' recommendation of 2.1 (a buy). It has a CAPS rating of four stars (a buy).

The two-year chart of EOG provides some technical direction for this trade.

(click to enlarge)

The slow stochastic sub chart shows that EOG is neither overbought nor oversold. The main chart shows that EOG is in a strong uptrend. It can still be bought. EOG has an average analysts' recommendation of 1.9 (a buy). It has a CAPS rating of five stars (a strong buy).

A caveat for any investors interested in one or more of the stocks above is that the overall market may be in for a downturn in the near future. We may be near the end of a bull market, and even without that, many pundits are predicting a huge pullback. Ralph Acampora recently predicted a 25% pullback in the very near future. Be judicious in your stock buying at this time. If you want to buy, consider averaging in over the course of the next year or so. Then you won't end up with a price from the top of the market.

NOTE: For those interested in EOG, a more thorough analysis of its recent performance can be found by following this link.

NOTE: Some of the above fundamental information is from Yahoo Finance and TD Ameritrade.

Good Luck Trading.

Source: How Do Halcon Resources' Recent Bakken Wells Compare To EOG's And Continental's?